Can Microfinance liberate a Poverty trap for Some Entrepreneurs?

NBER Working Paper No. 26346Issued in October 2019NBER application(s):The corporate Finance software, The development Economics software, The Labor reviews software, The productivity, Innovation, and Entrepreneurship software

Can microcredit support free up a poverty lure for some individuals via putting their companies on a special trajectory? could the small microcredit medicine consequences frequently found for the general family unit mask vital heterogeneity? In Hyderabad, India, we discover that "gung ho entrepreneurs" (GEs), households who have been already operating a company before microfinance entered, reveal persistent merits that increase over time. Six years later, the handled GEs own businesses that have 35% more property and generate double the revenues as these in manage neighborhoods. We locate basically no results on non-GE households. A mannequin of expertise option in which gifted entrepreneurs can entry either a diminishing-returns technology, or a more productive know-how with a set cost, generates dynamics matching the facts. These results reveal that heterogeneity in entrepreneurial skill is crucial and protracted. For proficient but low-wealth entrepreneurs, short -term entry to credit can certainly facilitate get away from a poverty trap.

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document Object Identifier (DOI): 10.3386/w26346